Whoa, there!

Magna creditor questions track auction terms

March 27, 2009|By Hanah Cho | Hanah Cho,hanah.cho@baltsun.com

A large creditor of the bankrupt owner of Maryland's thoroughbred tracks opposes the auction procedures being proposed to sell Laurel Park and Baltimore's Pimlico Race Course, home of the Preakness Stakes.

PNC Bank, whose loans are secured by all assets associated with Laurel and Pimlico, said Magna Entertainment Corp.'s proposal fails to protect the bank's interests and those of other secured creditors, according to documents filed Thursday with the U.S. Bankruptcy Court in Delaware.

The bank said Pimlico might fetch higher bids if it is sold before its highly profitable major race in May.

Canadian-based Magna filed for bankruptcy protection this month after carrying a huge debt load and losing millions during the past several years.

PNC argues that Magna's request does not clearly spell out whether it intends to sell its tracks, or both the assets and stock, membership and partnership interests associated with the properties.

Magna wants to auction its tracks across the country, including Santa Anita Park in Southern California.

PNC said Magna should specifically state its intentions and "how secured claims like those of PNC Bank will be dealt with in connection with any such transactions."

If Magna's auction request is approved at a hearing set for April 3, bids for its tracks would be due July 8 and winners approved Aug. 7.

PNC objected to the timeline, pointing out that bids for certain assets would be "significantly less" if Magna waits that long to sell them.

Using Pimlico and the Preakness as an example, the bank said selling those assets before the May race would "yield a significant higher purchase price than if the assets are offered for sale after the Preakness Race since the bulk of the revenues that Pimlico Race Course generates result from the Preakness Race itself."

Pimlico reported a 35 percent increase in profit to $1.8 million in 2007, compared with $1.36 million in 2006, according to the most recent financial reports submitted to the Maryland Racing Commission. Pimlico's net income, however, is almost entirely from the Preakness, the middle leg of racing's Triple Crown.

State officials are exploring ways to ensure that the Preakness, the state's largest one-day sporting event, remains in Maryland.

Maryland law gives the state the first option to buy the Preakness if it is offered for sale. In that case the state, which is struggling with a huge projected budget deficit, would have to match any accepted offer.

The state attorney general's office has retained the Venable law firm to represent Maryland's interests in the enforcement of its rights associated with the Preakness as well as about $190,000 in taxes owed to the state by Magna.

Baltimore officials recently retained lawyers to protect the city's interests, according to court filings.

In its request to auction Pimlico, Laurel Park and other tracks around the country, Magna does not specifically mention its intention to sell the rights to the Preakness, which it owns.

PNC also objected to what it called Magna's "almost absolute discretion" to accept or reject bids. It is asking the bankruptcy judge to reject Magna's auction request.

Separately, Magna said Thursday that it will not file its annual report for 2008 or its quarterly financial reports with the U.S. Securities and Exchange Commission as it operates under bankruptcy protection.

Canadian-based Magna said it will file monthly financial reports as required under the direction of the U.S. Bankruptcy Court.

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